It is difficult to keep medical records confidential, when they are paper based. If the medical records are kept in electronic format, it is possible for the patient to mark certain records as "private" so that it cannot be seen by other health care providers. Furthermore, it is easy to trace who has accessed the record and if the access is for a valid purpose.

This survey was carried out on the ruling by the Competition Commission against the medical fee guidelines issued by the Singapore Medical Association. 95% of the 40 respondents prefer to have the guidelines in place.
Read www.tankinlian.com/information.aspx (search for Competition and Medical Fees).

Investing for the Long Term - 21 August
Financial Planning - A Practical Approach - 28 August

I am giving the talk on 28 August. If you wish to ask questions to me, please register and attend the talk. Spend $30 and the time to be educated. It is for your own good. Do not wait to have a problem and ask for help at that time. You get a free copy of the book, "Practical Guide on Financial Planning".

According to this article, the property market in Singapore is a bubble, and is the worst in the world. This is measured by the ratio of property value to rent. The property prices are at least 20% over-valued, according to this criteria.

My view
I agree with the assessment. Our property prices are too high, due to temporary factors (i.e. the sudden increase in population) and the low interest rate. This cannot be sustained over the long term.

Hi Mr Tan,My father had passed away recently due to an heart attack. I received a letter which stated that he had nominated his children from Malaysia (from a previous marriage) for the proceeds. He left nothing to my mother who is the legally married wife.

Can my mother dispute the nomination as this scheme was intended to help the families tide over the first few years in the event of death? My mother had to bear the funeral and other expenses relating to the estate. Can she claim for the DPS even though she was not a nominee? If she was not able to claim from DPS, can she just ignore the pending settlements and issues in Singapore?

REPLY
It is best to talk to the nominees and ask them to settle the expenses out of the proceeds. Your mother can ignore the expenses, if she had not legally contracted to pay for them.

In the uncertain global economic situation, many people stay away from stocks. However, interest rate on bank deposits is too low. An alternative is to invest in government and corporate bonds. Read "invest in bonds" in www.tankinlian.com/ask.aspx.

Friday, August 20, 2010

In many countries, the regulator is active in protecting the interest of consumers of insurance services. Read this document. There is a need for insurance in Singapore to be more actively regulated, instead of leaving to "a light touch".

This report shows the pay of Members of Parliament in various countries. In most countries, the MP works full time in their parliamentary work. In Singapore, they work part time and have another full time job.

I'm looking at increasing and paying for the coverage for my parents. They're both around 70 and are now on Incomeshield standard plan B (capped). I'm hoping to upgrade to either plan A or P and possibly the enhanced plans (as-charged).

I've done the sums and found the differences in total premiums up to age 85 is large, i.e. an additional $ 37,000 for each parent. While I'd still like to get them the best, I'm thinking whether this is money well spent, relative to the extra benefits they bring. In particular, do one really need the extra benefit of as-charged vs. a capped plan?

REPLY
Your findings is similar to what I said in my book, Practical Guide on Financial Planning. Medical insurance is very expensive for old people.

There is no need to buy expensive medical insurance for elderly people. They can get good medical attention in subsidised B2 and C ward, which is largely covered by basic Medishield. The quality of care in the subsidised wards is quite good. There is no need for you to pay $37,000 on expensive medical insurance, which provides medical attention that is not much better.

I have also changed to basic Medisheild (without any rider) to reduce the premium cost for my own medical insurance.

There was a decision by the Competition Commission that the guidelines issued by the Singapore Medical Association on medical fees is anti-competition. I do not agree with their decision.

A sick patient is in no position to negotiate the fees with the doctor. If a doctor over-charges a patient for the consultation or medication, the patient may not be aware about it, or may not have any recourse. The guidelines provided by the Association is actually helpful to the patient to know what is the reasonable level of fees

I do not know what the Competition Commission wish to achieve by removing the guidelines. I think that the unintended consequence is that consumers will have to pay more in medical fees.

Here is my personal perspective. I read about the Internet when I was at Harvard Business School in 1993. It was restricted to academic circles. My company launched its website in 1995 - among the first to do so in Singapore - thanks to my technical head of I.T. The result is history.

My view
I have made many comments in the past that the biggest obstacle to raising children is the high cost of living. Parents do not wish to be burdened with this additional responsibility. In my view, the cost of raising children have to be largely borne by society and not be the parent.

Each family should be allowed to have two children, with the cost paid by society. We have to get away from the past practice of giving tax incentive, as it only benefits the high income earners, and they are not so keen to have children.

It is easy to make an internet banking transfer with DBS Bank. You only need to come prepared.
I have made many transfers before and now come prepared with the token, mobile phone, screwdriver, pliers and torchlight (in case I have to open up my computer when the system hangs)..
I usually have to go through a complicated process to authenticate the payee and then to remove it. What is in the small white container next to the torchlight? Some headache ointment!

Many retirees ask for my views about how to invest their savings. They are risk averse and not familiar with investing in the stock market. They find the interest rate paid on bank deposits to be too low.

The best investment is to keep the money in the CPF retirement account and earn an interest rate of 4% (plus bonus). For the other savings, they should invest in a low cost investment fund. Read more about it in my FAQ on "financial planning for a retiree) in www.tankinlian.com/ask.aspx. This FAQ also explains the type of insurance that is needed.

There is a talk being organised by FISCA on Saturday 28 August. It is suitable for retirees. Register at www.fisca.sg

49 people participated in the survey within 1 day. They gave their views on the two versions of the dream preasented by SM Goh and Lucky Tan. Read the survey report in www.tankinlian.com (see Latest, Singapore Dream)

Many stadiums at the Youth Olympic Games were more than half empty, although the tickets were reportedly sold out.

In the effort to look good, the organizers of the games asked the Ministry of Education to buy the tickets. The Ministry obliged and distributed them to the schools for the students to attend. Many students collected the tickets and did not show up. There is a saying "You can make a horse go the river, but you cannot force the horse to drink the water".

This challenge has played the organizers of local sports and art events for more than a decade. I hope that our top leaders realize the challenges. They have been sheltered from the realities of the ground due to the hard work of their underlings over the years - to make things look good.

Many Singaporeans do not have time for sports, arts and leisure. They have to work hard to earn enough money to pay for the mortgages of their HDB flats and the high cost of living. The students have to study hard to get a job to pay for these things.

To lead a gracious and cultural life, one needs to earn enough to afford them. Unfortunately, this is out of reach of most ordinary people in Singapore.Not many people earn the high salaries of our government leaders and the elites.

According to the coroner's report, Victor Yeo fell to death accidentally at the Hilton Hotel on his wedding night. He was locked in the staircase and tried many ways to get out. In desperation, he climbed through a ledge and fell.

I have personally experienced this type of situation in the staircase of some hotels. I like to walk through the staircase for exercise, and found that I could not get back. Sometimes, I had to go all the way down to the ground floor. The signs were usually inadequate - adding to the frustration.

I suspect that this must be a safety regulation from the fire department. It is impractical, probably unnecessary and caused a lot of inconvenience. It has now led to an unfortunate death.

Are there other safety and security regulations that fall in the same category - unnecessary, inconvenient and impractical? There are plenty of them - and they interfere with many aspects of our daily lives.

In the name of protecting the consumer, they expose the consumer to more risks. Some of them falls within the realm of internet banking and airport security, which I have raised many times previously. We need to find the balance between safety and practically.

It is possible for large organizations in Singapore to improve their customer service. By taking the lead, they can set the standard for other organizations to follow. I wish to share my experience with a large insurance company that I led in the past. Read my story in www.tankinlian.com (search for "customer service"). The strategies can be adopted easily in most organizations, - large and small.

Many commuters are unhappy at the higher fares for public transport, following the implementation of the distance-based fare system. Was there an alternative approach that could have been implemented? Is there still time to implement this alternative approach? Read my views in www.tankinlian.com (Latest).

I am asked to give a talk about risk management for young people. The audience are undergraduates. The organizer asked me to talk more generally about risk management and not focus on life insurance (as this was the practice of other speakers). I agree to the suggestion, as I believe that life insurance is not a good way of risk management for young people. You can read the key points of my speech here.

An insurance company is paying a lot of money to recruit new agents (up to 135% of the previous year's income as signing bonus) and to retain their existing agents.

Why is it necessary for the insurance company to be paying so much money, on top of the high commission rates that are already earned by the agents? Where does the money come from? The simple answer is - the money comes from the policyholders.

I have seen many benefit illustrations that show the about 40% of the value of accumulated premium taken away after 25 years. For example, if the accumulated premium is $500,000, about $200,000 being taken away, leaving only $300,000 to the policyholder. The $200,000 is a lot of money for the insurance company to pay high commission to the agent, to pay high signing and retention bonus and still leave a lot of money from their profits. But it is money taken from the naive and unsuspecting policyholders, leaving them with a net yield that is not sufficient to cover inflation.

If each policyholder "donate" $200,000 to the insurance company and the insurance company is able to sell 10,000 policies in a year, guess how much money is available to pay as signing bonus?

It was reported that MAS issued a statement, "We expect insurers to observe a high standard in their recruitment". Beyond this statement of good intent, I wonder if MAS does investigate how the policyholder's monies are being spent?

Mr Tan,My car was hit by a lorry while I was fetching my son from his childcare centre. During the accident, my car was parked outside the childcare centre (hazard light is on). I was about to buckle the seat belt for my son on the passenger side when the lorry hit my car on the right rear.

However, I was informed by the workshop later that the driver has given a different account of the accident. He claimed that I cut into his lane and caused his vehicle to hit my car. Now I am facing problem on claiming from his insurance company due to this discrepancy.

REPLYAre you able to find someone who can be a witness to this accident? This will be useful, if you have to dispute the other report of the accident. Anyway, if the lorry hit you in the rear, the lorry is liable for the accident, even if the lorry driver claimed that you stopped your car suddenly.

Sir,I am from India. I read your blog on net and saw your site also.your profile seem to be very interesting and excellent.
May I ask, is it safe to invest in gold in India? Can I invest all of my money in this field?

REPLYMy suggestion is to have a diversified investment portfolio. You can have not more than 20% of your total savings in gold. Maybe, 10% is the right proportion. For the remaining savings, you should invest in a diversified fund. Read my book on financial planning (www.easysearch.sg/ishop) or www.tankinlian.com/ask.aspx

Tuesday, August 17, 2010

Someone asked me why I am against life insurance, when I spent 30 years in this industry.

Life insurance is inherently good. It provides financial security through the pooling of risk of premature death and encourages thrift and savings. Life insurance becomes bad when it is used to take advantage of the ignorance of consumers by locking them into a bad product and milking them over a lifetime.

When I run an insurance company, I offered to consumers the opportunity to get a financial product that gives them a good yield for their savings. This was made possible through operating with low expenses and declaring high rates of bonuses from the surplus of the insurance fund.

During the earlier years, the regulators were quite strict in ensuring that the life insurance policyholders were treated fairly in the distribution of the bonuses. They inspected the insurance companies and asked them to justify their practices. The regulatory practice changed around the last 1990s under the "regulate with a light touch" regime. They allowed more leeway for insurance companies to run their operations.

This change of regulation was a big mistake. The insurance companies introduced new products that were quite unfair to consumers. The regulators allowed these practices, so long as they charges are disclosed in the benefit illustrations. Some of these products were clearly ripping off consumers.

The insurance companies also cut their bonuses on the pretext of low investment yields, but were slow in restoring the bonuses when the yields improve. This is unfair to consumers. and would not have been allowed in the earlier years. The insurance companies started to increase their marketing and other expenses, often at the expense of their existing policyholders.

This bad practices were the factors that made me now speak against most types of life insurance policies, except term insurance. I have also decided to intensify my efforts to educate the public to avoid these bad products. I hope that all young people, especially those who has just started work, learn about how to handle their own financial planning (see Practical Guide on Financial Planning) and getting locked into a long term savings plan that give them a poor yield.

I am assisting a small company, Typent, to market its services to small business owners in the following areas:

I.T. Outsourcing - the business can outsource the management of its infrastructure and security to Typent for a modest fee, which is lower than the cost of employing an I.T. specialist. The business owner enjoy the peace of mind that these critical issues are taken care by an expert.

SOHO bundle - the owner of a small office or home office can buy a bundle of I.T. hardware and software and get the consulting advice of the I.T. expert at a cost that is usually less than buying these items directly from the supplier.

Hi Mr Tan,I follow your blog quite regularly. I came across an article addressing whole life or term -- which I know you have addressed many a times on your blog.http://www.lioninvestor.com/whole-life-or-term/#commentsI am wondering if you find this appropriate to share on your blog? It offers a differing perspective.

My viewThe article is probably written by an insurance agent. They make a living by selling whole life insurance with a high commission paid upfront to them. They will make these type of arguments to hide the true facts and mislead the public.

A whole life policy is all right, if this priced fairly to the consumer, i.e. no upfront commission and a fair profit margin to the insurance company (but this has to be tightly regulated). Furthermore, the cash value has to be tightly regulated, similar to the asset share method adopted in Malaysia.

However, our regulatory environment does not protect the consumer for these abuses. So, it is best to avoid the whole life policy.

A structured product is a financial product created by a financial institution and sold to the retail investor. The issuer writes the terms of the product and keeps a margin to pay its expenses and make a profit.

The disadvantage to the retail investor is that the margin is usually not disclosed and not transparent and may take away too much of the projected yield, leaving little to the investor for the risk that they carry and the period that the investment has been locked up. (Imagine trying to gamble against an expert in the card game who is allowed to set the rules of the game! )

These structured products come in a variety of names, and are known generally as capital protected, capital guaranteed, dual currency investment, mini-bonds, pinnacle notes, etc.

Retail investors should avoid all types of structured products, unless you are savvy to be able to read through the legal documents and understand the complexity of the transaction. Do not trust the words of the marketing person blindly. Do not assume that the regulators have checked the products to be safe and fair - as they do not consider it to be their duty. Just avoid all of these products.

Here are the term insurance rates from insupermart.com. This is a subsidiary of Philips Securities. The term insurance is provided by NTUC Income. The rates are generally higher than the SAF Group Insurance, but is suitable for those who are not able to get cover under the SAF or other group insurance scheme.

According to the Straits Times report, the Transport Minister said in Parliament that the transport operators are expected to forego $88 million a year with distanced based fares, and that the Public Transport Council had assigned them two-thirds of the cost of moving to the new fare system, with one-third of the cost being borne by commuters.

How much did the new fare system cost to implement, and why was this figure not reported?

It is sad to read about the poor ticket sales for the Youth Olympic Games. The underlying cause is the high cost of living, which requires people to work hard to earn enough to pay off their loans. They cannot afford to pay for tickets to watch sports and arts events. They also have no time, after working long hours.

Many community events have to give away free tickets and goodie bags to attract retirees and grassroots leaders to attend. This state of affairs has been happening in Singapore for more than two decades. When will our leaders wake up and recognize the weakness of the Singapore economic model?

In this FAQ, I explain the options for investing your minimum sum at age 55 and how to choose between the retirement account, CPF Life annuity and buying a life annuity from an insurance company. Many people reaching age 55 have to make this important decision.

Regular visitors to my blog will find that I keep repeating the same message, "buy term insurance and invest the difference in a low cost fund". I keep posting this message in reply to questions that are directed to me by my visitors, who might have missed this message earlier.

It is all right to invest in life insurance products, provided that the charges are fair and that the products provide a decent yield to the consumer. The consumer should learn how to identify what are fair products and what are "rip off" products by studying the benefit illustration. So far, I have seen dozens of benefit illustrations and all of them take away too much from consumers. I have not seen any product that meet my benchmark of being fair.

I will have to keep mentioning this point, for the benefit of recent visitors to my blog who have missed the same message earlier. If you find that a message that is similar to what you read before, just learn to skip it. Do remember - it is meant for other readers.

I also advice visitors to read the FAQs in my website, www.tankinlian.com/ask.aspx. You should also buy my book, Practical Guide on Financial Planning. It is not fair for anyone to ask me to spend time to give free advice, when you do not bother to spend the time to read my guide book or the FAQs.

One big, costly mistake that a consumer can make is to overpay for a property, out of panic, and to watch it fall. Look at what happened in the USA.

The property prices in Singapore are too high, due to low interest rate and temporary shortage. This applies to all types of properties, including HDB flats. It is better for consumers to wait for the price to fall to a more affordable level, rather than pay a high price that will burden you for the next 30 years.

A reader of my blog sent an e-mail to me. He read my blog and website and paid special attention to my writing on the benefit illustration. He checked the benefit illustration on the living policy that he bought from NTUC Income in 2004 (when I was still in charge) and found that the effect of deduction was 40%. He asked me to explain why I am now advising people to avoid buying a policy with a deduction of more than 20%, when the policy that was sold during my time had a deduction of 40%.

I asked me to send the benefit illustration to me. Here are my findings on his 2004 policy:

1. The distribution cost at end of 5 years is $1,817, representing 96% of the annual premium. Most policies from other companies have a distribution cost of 130% to 180%. (Still, I consider 96% to be high, compared to other alternatives available to you now, such as a low cost investment fund).

2. The effect of deduction at the end of 25 years, based on an assumed yield of 4.5% p.a. is computed as follows:

Cash value (non-guaranteed) $68,548 (78%)

Effect of deduction: $19,843 (22%)

Value of accumulated premium = $88,391 (100%)

In this case, the effect of deduction is 22% of the total accumulated premium. It is quite close to my benchmark of 20% (as stated in my book on financial planning) and is much lower than what other policies take away from the consumer,(i.e. 30% to 40%). As this is a living policy (covering critical illness), it is all right for the effect of deduction to be slightly higher than 20%, as the policy provides a wider protection.

3. His calculation of 40% was wrong, as he used the wrong figures. I told him that the policy that he took in 2004 gave good value, compared to other policies available at that time. However, the policy may not be so attractive if the bonus had since been cut.

Many people get the impression that their insurance policy covers all types of situations that cause a losss. This is not correct. The perils that are covered are stated specifically in the policy. You should also read the exclusions, as they state specifically the perils that are not covered.

For example, some property or car insurances may not covered losses caused by flood. You have to read the policy wording to be sure about the cover.

You also have to be careful about the statements made by the insurance agent. They agent may tell you that certain types of losses are covered, when it is not really the case. The agent may make the wrong statements either by mistake or intentionally (i.e. to get you to complete the sale). You should ask the agent to show you the policy wordings on the insured perils and exclusions, just to be sure. Make sure that the wordings are clear to you.